Overview

What happens next?

The next key step is for the Gaming Control Board to start accepting applications. Earlier reports indicated this process would start on April 16. Suppliers could apply starting April 2; applications for platform providers go live June 4.

Once the GCB starts taking applications, two clocks start ticking.

The first is a 90-day clock that the GCB has to approve any individual application.

The second is a 120-day window in which existing casino licensees have the exclusive right to apply for licenses.

How we got here

Timeline for launch

With some key dates left up to regulators, there’s no firm timeline for launch in Pennsylvania. However, we do know a few things that help us to carve out what’s likely a reasonable window for launch:

New Jersey took about nine months from bill passage to launch of regulated online gambling.

Pennsylvania will benefit from New Jersey’s experience on the regulatory front. There has been ongoing dialogue between the two states for several years.

The bill in Pennsylvania appears designed to allow regulators to fast-track some aspects of the approval process.

Pennsylvania’s fiscal year ends in June, which places some political pressure on the process (i.e., the government would prefer to book license fees before the fiscal year ends).

With all of that in mind, it’s not unreasonable to pencil in a launch date in the second half of 2018 for Pennsylvania. However, early 2019 is not out of the question.

Shape of the market

Who will be able to play?

Broadly speaking, individuals located in the state of Pennsylvania at the time of play who are 21 and over. You do not have to be a resident of Pennsylvania to play.

Employees of land-based licensees and key employees of platform providers are excluded, as are individuals who are barred from land-based casinos and individuals who have elected to self-exclude.

What games will be available?

In simple terms, online casino games and online poker games. But the bill gives the Pennsylvania Gaming Control Board (PGCB) reasonably broad latitude to approve a wide array of games.

Due to the unique taxation structure that penalizes slot play and favors table games / poker (more on that below), there’s a reasonable possibility that we’ll see some new game variants developed for the Pennsylvania market that attempt to appeal to slot players while staying within the definition of a table game or a poker game.

How many sites will there be?

This is an open question. The licenses to operate (referred to as “Interactive Gaming Certificate”) are limited based on the number of casino licenses issued by the state. As things currently stand, that means there are:

Pennsylvania’s bill is a bit hazy on the details of how many “skins” (unique brands or websites) can operate under a single license. The bill appears to be silent on the issue. There’s definitely no hard cap described. Skins would need to be partnered with a certificate holder, so there’s definitely a practical cap in terms of what the casinos will feel comfortable with.

Most likely, this issue will be one that regulators are left to handle. I would guess that you’ll see upwards of 25 brands (including casino and online poker) in the Pennsylvania market if there is no restriction on skins.

Who are the current casino license holders in PA?

Harrah’s

Hollywood (Penn)

Lady Luck

Meadows

Mohegan Sun

Mount Airy

Parx

Presque Isle

Rivers

Sands Bethlehem

SugarHouse

Valley Forge

Will PA link up with other states that offer online gambling?

The bill does speak to the potential for compacts in 13B61. Additional information follows.

How long until PA shares player pools with other states?

Unclear at this point.

We expect regulators to move quickly, but the reality is that the PGCB will have quite a bit on its plate to get online gambling up and running. Player pooling is likely to take a backseat to other, primary concerns.

The first thing to watch for is the launch of the DE / NV / NJ pool. Once that’s up and running, you’ll likely see more urgency on Pennsylvania’s side.

Will interstate play be for poker only, or casino as well?

Likely both, although the biggest immediate impact will be on the poker side.

But the arrangement between DE / NV / NJ is designed to allow for casino pooling as well (e.g., multi-state progressive jackpots, shared player pools on games like roulette or craps, shared player pools on live dealer games).

Taxes and fees

What are the tax rates?

There are three distinct tax rates:

54% for “non-peer-to-peer interactive games which simulate slot machines”

16% for “non-peer-to-peer interactive games which simulate table games”

16% for “peer-to-peer interactive games”

Tax is based on gross gaming revenue, which is defined as “the total of all cash or cash equivalent wagers […] minus the total of cash or cash equivalents paid out to to registered players as winnings.”

How the tax revenue and local share are distributed is described in 13B52 and 13B53, respectively.

What are the license fees?

It depends.

During the first 90 days after licensing opens, casinos can only buy all three categories (poker, table, and slots) in one bundle for $10mm.

During days 91-120, casinos can buy individual categories for $4mm each.

After day 120, if any licenses are available, “qualified gaming entities” can submit an application for the remaining licenses at a cost of $4mm per category.

How much will PA make from online gambling?

There are two components to this question: The revenue from license fees and the ongoing revenue from taxes.

License fees: The state will likely take in around $110mm from upfront license fees, although it’s possible that the high tax rate could dissuade participation.

Tax revenue: This is the big unknown in Pennsylvania’s market. The question is: How negative of an impact will the high tax rate have on the performance of the market? At a 20 percent tax rate, we estimated that the PA online gambling would bring in $364mm in total revenue by Year 5. If the high tax rate chops that number to $250mm, PA will realize roughly $105mm in annual tax revenue.

Why is PA’s online gambling tax rate so high?

The online tax rate is basically in line with the state’s land-based tax rate, which is the highest in the US that I’m aware of. Keeping tax parity between land-based and online was part of the political deal necessary to get the bill passed.

Is the tax rate likely to be revisited?

Not anytime soon.

Gov. Wolf does not have the ability to alter the rate (i.e., he lacks a line-item veto).

And lawmakers know full well the gamble they’re taking – that operators will complain about the rates, but come online anyway, and that the resulting market will be large enough to generate more taxes than a larger market would have generated at a lower rate.

If multiple licenses go unsold and / or the performance of the market drags markedly relative to New Jersey, then you could see the rate revisited.

There’s also the possibility that a repeal of PASPA could open the door for a fuller legislative look at sports betting, which could provide a legislative vehicle for altering the online gambling tax rates.

Licenses and regulation

Is there any “bad actor” clause?

No. All applicants have to pass the same suitability checks that the PGCB applies to land-based operators, but there is nothing in the bill that explicitly limits applicants based on past activities in the US market.

Who will be able to offer online casino and poker?

It depends. See the section above regarding “how many sites will there be.”

The key licenses are initiallylimited to land-based casino licensees. If not all of the licensees participate, then the door opens to “qualified gaming entities,” who do not have to have a land-based presence in PA.

Who will oversee online gambling in PA?

How long are licenses good for?

Five years.

How long will license approval take?

The PGCB has 90 days following a license application to approve or deny the application.

When will PA regulators start accepting license applications?

There’s no firm deadline in the bill. But I believe the answer is sooner than later, largely because the PGCB will be under pressure to get the application process started so that license fee revenue can be booked in the current fiscal year (which ends in June).

Sports betting / daily fantasy sports

When will PA offer sports betting?

The ability of Pennsylvania to offer sports betting is contingent on the repeal of PASPA, a federal law that prohibits most states (including Pennsylvania) from regulating sports betting. PASPA is currently the focus of a constitutional challenge from the state of New Jersey, a case that will be heard by the Supreme Court in December. More background on that here.

A decision in that case is expected in the first half of 2018.

Will PA offer online sports betting?

H 271 clears the way for both land-based and online sports betting in Pennsylvania, assuming PASPA is knocked out of the way.

What will change for DFS players in Pennsylvania?

Very little. Major DFS operators such as DRAFT, DraftKings, and FanDuel already serve the PA market and are likely to continue to do so post-regulation.